Bloomberg News

BlackRock Third-Quarter Net Income Rises 8% on Advisory Fees

October 19, 2011

(Updates with net client withdrawals in third paragraph.)

Oct. 19 (Bloomberg) -- BlackRock Inc., the world’s biggest asset manager, said third-quarter profit increased 8 percent on higher fees for managing client assets and advising institutions on hard-to-value securities.

Net income increased to $595 million, or $3.23 a share, from $551 million, or $2.83, a year earlier, the New York-based company said today in a statement. Excluding certain one-time items, BlackRock earned $2.83 a share, compared with the $2.66 average estimate of 14 analysts surveyed by Bloomberg.

BlackRock said assets fell 8.6 percent from the prior quarter to $3.35 trillion, driven by $303.9 billion in market declines and $10.2 billion in net withdrawals. Chief Executive Officer Laurence D. Fink, 58, is trying to expand products in “high-fee businesses” such as hedge fund-like mutual funds, commodities and private-equity strategies as investors are reassessing their investments because of macroeconomic uncertainty.

“BlackRock exceeded expectations despite a challenging quarter for the markets,” Macrae Sykes, an analyst at Rye, New York-based Gabelli & Co., said in an interview. “The flows show strength in their ETF business.”

Sykes had expected BlackRock to earn $2.64 per share on an adjusted basis.

‘Volatile Markets’

Earnings were curbed by an 18 percent slump in global stocks during the quarter, as European leaders clashed over how to assist Greece and American lawmakers struggled to agree on raising the federal government’s debt limit.

“With the persistence of volatile markets, low interest rates and the low-growth environment, an increasing number of investors are re-evaluating their investment and asset- allocation decisions,” Fink said in today’s statement.

Investment advisory fees rose 8.6 percent from the prior year to $1.95 billion, while revenue at the BlackRock Solutions unit, which advises governments and institutions on troubled assets, rose 16 percent to $117 million. Performance fees, which are tied to returns earned by funds, fell 20 percent to $91 million.

Investors removed $8 billion from BlackRock’s active stock funds during the quarter, while adding $9.8 billion to index- tracking products including the firm’s iShares exchange-traded funds. Clients pulled $14 billion from BlackRock’s fixed-income funds driven by a single withdrawal of $9.1 billion from an institutional investor, which BlackRock said had “minimal revenue impact.”

Stock Fund Withdrawals

The Standard & Poor’s 500 Index declined 14 percent during the three months that ended Sept. 30, its biggest quarterly drop since the end of 2008. The benchmark equity index fell to a low for the period of 1,119.46 on Aug. 8 after S&P cut the U.S. long-term debt rating.

Robert Lee, an analyst with Keefe, Bruyette & Woods Inc. in New York, cut his average earnings estimate for asset-management firms by 6 percent for the quarter as declining stock markets eroded assets and investors withdrew money from stocks amid market volatility.

“Reflecting the turmoil in equity markets, equity fund flows remained weak, driven mainly by domestic equity fund outflows,” Lee wrote in an Oct. 10 note to clients.

BlackRock, which acquired Barclays Global Investors in December 2009 to add exchange-traded funds to the actively run stock and bond funds it oversees, said in July that redemptions related to its takeover of Barclays unit had come to an end.

Series of Acquisitions

Fink, who co-founded BlackRock in 1988, has built the firm through a series of acquisitions, including the 2006 purchase of Merrill Lynch & Co.’s investment unit. BlackRock acquired the hedge fund-of-funds business of Quellos Group LLC in 2008. The company this year has expanded the alternatives division, which manages hedge funds, real estate funds and private-equity strategies.

BlackRock announced results before the start of regular U.S. trading. The shares have lost 18 percent this year, compared with the 24 percent decline in the 19-member S&P index of asset managers and custody banks.

--Editors: Christian Baumgaertel, Larry Edelman

-0- Oct/18/2011 19:57 GMT

-0- Oct/18/2011 20:29 GMT

-0- Oct/19/2011 10:22 GMT

-0- Oct/19/2011 10:37 GMT

-0- Oct/19/2011 10:38 GMT

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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